Alabama Power rate cut: A penny saved (literally)

To read the press release, the Alabama Public Service Commission had secured a significant rebate on electric rates, while thumbing its nose at the Obama administration.

Buy Photo

(Photo: Albert Cesare / Advertiser)

Commissioner Chip Beeker said in the statement that families in the state would “have an easier time making ends meet due to the actions we have taken today.” PSC President Twinkle Cavanaugh accused the federal government of driving up rates in other states. Commissioner Jeremy Oden said the decision would provide Alabama Power customers with the “opportunity to actually put money back in their pockets.”

But both Alabama Power and environmental groups say that money will look less like billfold and more like loose change found in a sofa.

The utility said last week the new rates will save a typical residential customer an average of $5 over the year, or about 1.3 cents a day. The actual savings will vary depending on households’ electricity use and fuel costs next year.

Additionally, the new rates were due to a return of what in October was $146.5 million in overcollected money, due to cheaper-than-expected fuel costs.

“They’re just returning money already paid to them,” said Michael Hansen, interim director of GASP, an air quality group in Birmingham. “It’s not a great PR move or anything like that.”

Alabama Power spokesman Michael Sznajderman said the utility knew the cut was not major, but said they succeeded in keeping rates stable. The utility blames environmental and other regulatory costs for not resulting in a bigger decrease.

“We’re trying to be transparent,” Sznajderman said. “There are very significant regulation costs we are dealing with now and we are going to be dealing with the next several years at least.”

Responding to emailed questions, Beeker said he considered “any rate reduction, large or small, to be good news,” while acknowledging it would mean more for others.

Attempts to reach Cavanaugh and Oden last week were unsuccessful.

The utility for years has said regulations are pushing it away coal and forcing it to invest in new technologies to keep up with them. Alabama Power estimates its total regulatory costs in the coming year at $250 million.

For all that, though, the utility – guaranteed a profit under Alabama law – isn't close to the red. Alabama Power brought in $5.9 billion in revenue in 2014, according to its annual report filed last spring. After expenses and dividends, the utility reported net income of $761 million that year, a growth of $49 million over 2013.

“We are entitled to receive a certain return, and in return for that we have obligations to keep the power reliable and the service high quality,” Sznajderman said. “We have some of the highest levels of reliability in the nation.”

According to PSC records, the utility’s overcollections amounted to about $131 million by June. The PSC did not act to refund the money at the time. Sznajderman and Beeker said the practice was generally to wait until the end of the year.

“If the commission decided at some point let’s go back now let’s return now, I’m sure they had authority to do that,” Sznajderman said. “But our system typically looks at where the rates go at the end of year.”

Beeker said December was “a good time” to make those decisions.

Joyce Lanning, an analyst with the Alabama Environmental Council, said Alabama Power can overcollect as much as $20 million a month.

“They knew they were going to be overcollected but they went ahead anyway,” she said. “Really, at any time the PSC could have chosen to adjust the factors and make them more even.”

The utility only returned $120 million of the overages. Sznajderman said the utility had to be "deliberate" about future environmental costs.

"You can do significant things and have significant improvements," he said. "We have to let our customers know there are costs involved in this and that ultimately those costs will be borne by our customers."

Higher than average costs

Alabama generally has higher-than-average residential electric prices than its neighbors. According to the Energy Information Administration, Alabama households paid an average of 11.82 cents per kilowatt hour in September, up from 11.55 cents the year before. The rate was higher than every southern state except South Carolina.

The rate cut approved by the PSC will cut across residential, commercial and industrial customers. Beeker said the commission did not consider targeted cuts.

Alabama Power is also unique in Southern Company for its reliance on coal as part of its energy package. In 2014, coal accounted for 54 percent of the company’s energy profile, with nuclear energy making up 23 percent, natural gas 17 percent and hydroelectric power 6 percent. Its sister companies, Georgia Power and Mississippi Power, got no more than 42 percent of their energy production from coal that year, and both had much more significant investments in natural gas.

Sznajderman said that the company traditionally relied on coal, but that it would cut back on it, blaming regulations.

“We are not pro one fuel source or against the other fuel source,” he said. “We want an all of the above strategy. The idea is the best thing for us and our customers is to have a diverse fuel mix.”

The utility gets most of its coal from Wyoming’s Powder Basin, which saw some prices decline in June. But the lure of natural gas is hard for utilities to resist: the price of 1 million BTUs of the fuel reached $2.10 on Nov. 18, and the EIA said natural gas prices are at a three-year low. Sznajderman said the price of natural gas was not a factor in the conversion, saying the regulations were.

At the same time, Southern Company said in its 2014 annual statement that its long-term coal use, currently at 40 percent companywide, would be no more than 49 percent by 2020, and possibly fall to 21 percent. The report, while noting investments in alternative coal technology in Mississippi, also touted utility's use of natural gas, nuclear and solar power.

"People want clean energy," he said. "They want to move away from coal. Coal is an outdated form of energy anyway. In other states in other parts of the country, demand is increasing for solar and wind and clean energy."

Environmental groups also note the shift away from coal brings its own benefits. A study by the Environmental Protection agency released in 2012 estimated that amendments made to the Clean Air Act in 1990 -- which aimed to cut acid rain and regulate more toxic chemicals -- found the changes prevented 184,000 premature deaths and saved at least $5.6 trillion in health care costs. Scientific American reported in June that regulations to reduce sulphur dioxide emissions, along with the embrace of natural gas, improved visibility in the state due to declining soot. Hansen also noted general gains to public health when coal emissions are reduced.

“Those savings are far, far greater than any burden on a power company,” he said. “The net benefit is by far on the side of reducing emissions.”

Sznajderman said Alabama Power welcomed that.

“We have reduced emissions by about 80 percent over 10 to 12 years,” he said. ”These additional controls will reduce emissions even further.”

Asked if he saw value in federal regulations reducing pollution, Beeker wrote that the “question is too nebulous to answer.”